Defense Firm Takes the Offensive : Economy: Ocean Technology of Burbank has its sights set on foreign customers to make up for an expected 10% decline in sales to the U.S. military.

For most companies, flat sales are a sign of bad times, but in the defense industry these days it’s not bad. Ocean Technology Inc. in Burbank, a small defense contractor, expects its sales to hold steady this year at about $33 million and hopes to record a small increase next year.

That’s because Ocean Technology plans to make up for an expected 10% decline in sales to the U.S. military by increasing its share of foreign business. It intends to boost sales to Taiwan, where it has already sold some voice communications systems and color display monitors used on naval ships, submarines and aircraft. And it plans to start selling soon to Korea, Malaysia, Turkey and Greece.

“We’re working very hard on the foreign marketplace,” said John M. Molloy, Ocean Technology’s vice president.

Ocean Technology is a subsidiary of Alltel Corp., a telecommunications company from Hudson, Ohio. Ocean Technology’s biggest domestic contracts are for providing Trident submarines with signal data converters--box-shaped devices that transmit computer data and commands to weapons and typically cost upward of $250,000-- and for color computer monitors that display data for weapons systems operators on the Aegis-class cruisers, some of which are now stationed in the Persian Gulf.

But over the next several years, cuts in the U.S. defense budget are expected to slow the building of new ships and submarines--Ocean Technology’s biggest market.

Selling to foreign countries “is one of the major strategies of most companies in the defense industry,” said Reeve Darling, a Los Angeles defense consultant and chairman of the President’s Roundtable, a group of about 50 defense industry chief executives.

Darling said many foreign countries are eager to buy sophisticated American-made military equipment. “Any country that wants to protect itself has a significant demand” for the types of products that Ocean Technology makes, he said.

Others are less enthusiastic, however, about the strategy of turning to foreign markets to compensate for a decline in domestic military spending. “I’m a real skeptic about foreign sales,” said Michael Beltramo, a Los Angeles defense analyst. Why? Because selling in foreign markets often means years of groundwork, packaging older technology to suit military systems that aren’t as sophisticated as ours and dealing with a bureaucratic maze to get U.S. government approval to make the sales.

“It’s a long-term commitment,” Beltramo said.

Molloy said Ocean Technology actually made the commitment to boost foreign sales six years ago, when the Reagan-era defense buildup was still under way. Even then, he said, the company saw that the good times for defense contractors couldn’t last forever.

“The defense budget always goes up, but it always comes back down again,” Molloy said. When the U.S. has finished a defense buildup, that’s when foreign demand for American military goods typically starts picking up, he added.

Selling overseas often requires years of maneuvering. Ocean Technology’s entree to the foreign market is a case in point. In 1984, it had been doing research and development for General Electric, which was working on a program to sell mobile radar systems to Taiwan. Ocean Technology wanted to get in on the program by selling its color display monitors as part of the systems.

After receiving a license from the U.S. government to make a proposal to Taiwan, Ocean Technology executives spent the next year shuffling back and forth to Taiwan for technical briefings. When the Taiwanese finally awarded the contract to build prototypes to GE and Ocean Technology, another license was needed from the U.S. government--yet another months-long delay.

Years later, some monitors have finally been delivered to Taiwan for testing. “If they’re happy, we’ll go to production and we’ll sell to Taiwan for the next three to four years,” Molloy said.

Ocean Technology also has a contract with Taiwan to sell voice systems that link communications between ships or aircraft. It hopes to land contracts to provide the systems to Korea and Malaysia.

The company also has big hopes for its new MK 53 fire control system, which combines a signal data converter, color graphics display and computer into one system for launching weapons. The MK 53 takes input from sonar, analyzes it and presents the data on the monitor. When the operator on a ship gets ready to fire a torpedo, for example, the computer provides data on where to point the launcher, the projected distance and radar to track the torpedo when it hits the water.

Molloy said Ocean Technology won the U.S. Navy contract to supply the MK 53 two years ago over competitors including Honeywell, Unisys and Librascope, a Glendale-based defense contractor. The contract is worth about $50 million over a four-year period, he said.

Now the company hopes to secure orders for the MK 53 from Taiwan, Korea and Malaysia.

The key to making sure its products are marketable in foreign countries--and permitted by the U.S. government--is to piggyback on foreign sales of ships and aircraft, Molloy said. For instance, if a sale of submarine or an F-16 aircraft is made to a foreign country, Ocean Technology will try to follow with sales of the voice communications equipment or graphic displays that go on board.

When a planned sale of F-16s is made to Turkey in the near future, and expected sales of helicopters to Greece, for example, Ocean Technology hopes to win the contracts to provide the communications systems for those aircraft.

Much of Ocean Technology’s foreign business is done by its office in Washington, where transactions are arranged through the Pentagon or through foreign embassies. Like many smaller defense contractors, it also maintains relationships with independent marketing agents in foreign countries.

Ocean Technology was founded by Arnold Larson, a former Librascope engineer who left with six others in 1964 to start a new company. In 1985, they sold Ocean Technology to CP National, a Walnut Creek telecommunications company. When CP National merged with Alltel in December, 1989, Ocean Technology went along as part of the deal.

Alltel now plans to sell Ocean Technology as part of its plan to focus on its core business. “It just doesn’t fit our strategic long-range plans,” said Alltel spokesman Ronald Payne.

Alltel has hired the investment banking firm Stevens Inc. to find a buyer for Ocean Technology, but Payne declined to say how much Alltel was asking or if any discussions are under way.

Molloy said there were no plans for a management-led buyout of the company.

Larson, who stayed with the company through the changes in ownership, retired last year. President James Majewski, an engineer and former executive at McDonnell Douglas and H.R. Textron, joined the company in 1985.

At Ocean Technology’s Burbank headquarters a staff of about 50 engineers design and update equipment. The parts are made by various subcontractors, then assembled at the Burbank plant. The company’s work force totals about 400, including service offices in San Diego and Newport, R.I.

Though the defense industry is likely heading into a slump that could last for several years, Molloy said, “Everything isn’t going to go to zero.” Ocean Technology hopes to keep government funding for research and development and also cash in on the need for refurbishing old equipment.

In the meantime, he said, “what the foreign business does is let you sell the things you’ve already developed.”